Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 59 - Evidence - Meeting of November 27, 2018
OTTAWA, Tuesday, November 27, 2018
The Standing Senate Committee on Agriculture and Forestry met this day at 6:44 p.m. to study how the value-added food sector can be more competitive in global markets.
Senator Diane F. Griffin (Chair) in the chair.
[English]
The Chair: I am Senator Diane Griffin from Prince Edward Island and chair of the committee.
Today the committee is continuing its study on how the value-added food sector can be more competitive in global markets.
Before we hear from our three witnesses, I would like to start by asking the senators to introduce themselves, and we’ll start with the deputy chair.
[Translation]
Senator Maltais: Senator Ghislain Maltais from Quebec.
Senator Dagenais: Jean-Guy Dagenais from Quebec.
Senator Gagné: Raymonde Gagné from Manitoba.
Senator R. Black: Senator Robert Black from Ontario.
[English]
Senator C. Deacon: Colin Deacon, Nova Scotia.
The Chair: On our panel tonight, we have with us in the room, from the Canadian Seed Trade Association, Mr. Todd Hyra and Mr. Dave Carey. On the screen, we have, from the Intellectual Property Institute of Canada, Patrick Smith, the president of the institute.
Mr. Smith, we’re going to start with you.
Patrick Smith, President, Intellectual Property Institute of Canada: Thank you, Madam Chair. My name is Patrick Smith, and I am the President of the Intellectual Property Institute of Canada. I want to thank you for the invitation for IPIC to present our recommendations for IP policies that can help the value-added food sector be more competitive in global markets.
As you may know, IPIC is the Canadian professional association of patent agents, trademark agents and lawyers practising in intellectual property, sometimes referred to as IP. IPIC is pleased that this committee recognizes that intellectual property is a key component to ensuring that the Canadian value-added foods industry is competitive in global markets.
IPIC often speaks to government in various forums about recognizing the importance of IP at every stage in the life cycle of a business’s growth and therefore its importance to driving Canada’s economic growth. Many of our major trading partners also recognize the importance of IP to business, and they are acting on that through the creation of policy incentives that reward the creation, protection and leveraging of intellectual property.
Before setting out IPIC’s recommendations on policy initiatives, it may be useful to outline how various IP rights are used at various levels in the value-added food chain. IP rights are generally thought to encompass patents, trademarks and copyrights, and are used by various food industries to protect technological innovations, branding and design. Patents can be used to protect innovative, genetically modified or traditionally cross-bred plants with beneficial properties. Patents can also be used to protect innovative chemical compositions of foods or for improved methods or equipment used in food processing. Patent protection helps in recovering investment in research and development, as well as in generating income opportunities in Canada and abroad. Labelling and packaging are important marketing tools, and trademarks and copyrights can be used to protect these brands and designs. IPIC’s members work with a variety of businesses on all of these issues.
With that construct set out, I’m going to turn to IPIC’s recommendations, which are two-fold. First is a first patent program and the second is an IP box program.
These are not new proposals. In last year’s Standing Committee on Finance report in preparation for Budget 2018, the FINA committee recommended that the Government of Canada create an investment for businesses to protect their IP by creating a first patent program. The FINA committee also recommended the government establish incentives for IP development and commercialization through a commercialization coupon for researchers receiving federal grants and an innovation box tax incentive for business revenue derived from commercialization of their IP. Unfortunately, these recommendations were ultimately not adopted in Budget 2018. However, IPIC still believes that the need exists for all Canadian industries, and the value-added food sector is no exception.
IPIC encourages this committee to call upon the government in your report on this study to create financial incentives for Canadian businesses in the value-added food sector to generate and protect their IP. Many countries around the world are starting to see success from introducing an IP box tax incentive, and Canada’s major trading partners are starting to notice.
Here are the two recommendations from IPIC. The first is to have the IP box and the second is a first patent program.
Starting with the IP box, the expression IP box, or innovation box, comes from a check box on tax forms to identify revenues derived from leveraging intellectual property, and it applies a reduced tax rate for those revenues. This incentive would lower the tax burden on IP revenues, which could apply to the value-added food sector and would allow these businesses to compete more effectively in global markets. An IP tax box incentive will help spark innovation and R&D in the value-added food sector through lower corporate taxes on qualifying income.
Similar programs are already offered for all industries in Quebec and Saskatchewan, as well as abroad in the U.K. and the Netherlands. Early indications are that it will also be offered in the U.S.
We also suggest the incentive not only apply to revenue derived from patents but also for other forms of intellectual property, many of which are currently being deployed by the value-added food sectors. These include trademarks, trade dress, trade secrets, copyright and industrial designs.
Second, IPIC also continues to recommend that Canada introduce a rebate for start-ups and small businesses that take the important first step of seeking protection for their intellectual property. This can be done through a first patent program. A first patent program has existed in Quebec since 2015. The demand for this program has been so high that funds were quickly exhausted in less than a year.
A similar program at the federal level will assist Canadian inventors, start-ups and SMEs that are at a critical point of having developed an invention, are able to seek a patent protection but may not have the resources to do so. A first patent program that is available to the value-added food industry will ensure start-ups and small- and medium-sized enterprises work with IP professionals to protect their initial IP and give them the confidence to build an IP strategy into their core business plan.
Canada has the potential to be a leading innovator in today’s advancing marketplace. We believe IP agents are at the forefront of helping us succeed in that vision. We continue to support the government’s goals of pushing Canada forward to be leading innovators in today’s competitive world economy.
The Chair: Thank you, Mr. Smith.
Todd Hyra, President, Canadian Seed Trade Association: On behalf of our members, we appreciate the opportunity to be here today. My name is Todd Hyra, and I serve as president of the board of directors or the Canadian Seed Trade Association, or the CSTA
In my day job, when I have time, I’m the western business manager for SeCan. SeCan is a consortium of over 600 independent Canadian seed businesses engaged in seed production, processing and marketing. As Canada’s seed partner, SeCan actively seeks partnerships that promote success in Canadian agriculture. SeCan is the largest supplier of certified seed to Canadian farmers, with more than 480 varieties in 27 crop types developed by both public and private plant breeders. Collectively, SeCan members are major supporters of seed variety research and development, returning more than $104 million in royalties and research since inception in 1976.
I will be sharing my time today with Dave Carey, CSTA’s executive director.
Founded in 1923, CSTA is a not-for-profit trade association that brings together more than 130 company members engaged in all aspects of seed, from research and development to production and marketing, processing, and domestic and international sales. CSTA’s members serve the needs of their farmer customers by developing seed, utilizing all available production methods, ranging from small family-owned and -operated companies to large multinational firms. Our members work with over 50 different crop kinds, ranging from field crops like canola, corn, soybeans and wheat to forages and grasses, garden seed and vegetables. Our members produce high-quality seed that is planted by farmers across the country.
Our members are united in their support of CSTA’s mission statement: to foster seed innovation and trade. Canadian farmers are innovators and early adopters of the newest and best technology. Beginning in 2017, with the federal budget, there has been a bigger spotlight placed on the agricultural industry as a key driver in Canada’s 21st century economy. Canada is fortunate to produce far more food than we can consume. As such, we are able to export our goods to markets around the world.
Ambitious but achievable targets have been set, but to reach the $75 billion goal in ag exports by 2025, we need to innovate. We need to produce more on the same land. We need to strengthen and open up new markets. We need to see increased investment in diversity of all crop kinds. We will meet our export targets by maximizing the yield on each and every acre, not by cultivating more land.
This is why seed is so important. Seed is the start of it all, the link in the agri-food value chain. Seed is where the innovation is delivered. It is the microchip that powers the $108 billion annual agriculture industry.
However, innovation requires investment. To secure investment in research and development in Canada, we need to be seen as an attractive place to do business. We need a whole-of-government approach to analyzing, reviewing and modernizing our domestic regulatory system. Ill-suited regulations can curb or discourage investment in innovation.
The seed industry alone contributes $6 billion to the economy, employs more than 60,000 Canadians and exported more than $600 million in 2016-17.
We applaud the committee for undertaking this important study. It is critical to recognize and understand the role that innovation and advancements in agriculture play in feeding Canadians and driving the economy through exports.
I’ll now turn to Dave Carey for the remainder of our time.
Dave Carey, Executive Director, Canadian Seed Trade Association: Thank you, Todd and honourable senators. We’re happy to be here to share our perspective.
As Todd said, seeds are the first link in the value chain. Where you’re looking for value-add, a lot of that comes through better genetics for better yield, better protein profiles, et cetera. Seed is really the start of the ag value chain, so we’re happy to be here to share our perspective.
Canada has made strides in recent years toward fostering an environment that will encourage investment in other crop kinds, most notably the adoption of robust intellectual property protection for plant breeders through the passage of the Plant Breeders’ Rights Act.
But our members and their farmer customers need access to all the tools in the innovation toolbox. In particular, plant breeders need access to critical crop protection products and the ability to use the newest plant breeding methods, such as CRISPR-Cas9 and other gene-editing systems.
In October, this committee heard from our partner organization, CropLife Canada, on what is needed to attract the kind of investment needed for real innovation. We echo CropLife’s comments. We need a regulatory system that has a clear path to market and allows small- and medium-sized companies to innovate and compete. Currently, the regulatory system for plant breeding innovation lacks clarity, service standards and is prohibitively expensive for small- and medium-sized companies.
There is no silver bullet to increasing Canada’s ag food exports and value-added, but there are some critical pieces to the puzzle that are necessary to unleash Canada’s agriculture potential. Recently, Agriculture and Agri-Food Canada and the Canadian Food Inspection Agency launched consultations to update the Plant Breeders’ Rights Regulations to implement a value creation system in cereals breeding to encourage private-sector investment in plant breeding. There’s a consultation here in Ottawa on Friday. As this committee heard from the University of Manitoba, plant breeding is done by the public and private sector. Traditionally, just three crop kinds have dominated investment: corn, canola and soybeans.
CSTA and our partner organizations applaud the government of Canada for undertaking these critical intellectual property consultations that will benefit both public and private breeders, whether that’s Agriculture and Agri-Food Canada or the University of Saskatchewan. The government is consulting on two possible models to foster motivation. CSTA has endorsed the trailing contract model that we’re calling the seed variety use agreement. The seed variety use agreement addresses a serious need for increased investment in plant breeding to support Canada’s cereal, pulse and specialty crop producers. Variety development research for these crops is significantly under-resourced when we consider the long-term view of increased competition and the rapid pace of new technology and innovation. In cereals, for example, we are missing out on the potential to generate $170 million in annual benefits for producers and $340 million for the economy, based on third party research, by implementing a value creation model such as a seed variety use agreement.
We encourage the Government of Canada to continue to seek new trade deals, as well. Trade deals help alleviate tariffs. More importantly, in the seed industry, they help alleviate non-tariff trade barriers. Seed generally trades with low or no bound or applied tariffs. While it’s an advantage for our members, we do experience issues around non-tariff trade barriers such as phytosanitary measures and asynchronous approvals for biotech products. Canada is in the envious position of being a net exporter. To enhance our global presence, we need modern, comprehensive trade agreements. We also need to look aggressively at pursuing new deals, with China being the most critical agriculture export for most of our members.
Given Canada’s reputation for ag innovation and our history of success in exporting products of biotechnology, we should be standing at the forefront, championing and encouraging the adoption of the newest tools that will drive innovation in seed and grain — tools like gene editing to bring new varieties to the market faster, with lower costs than ever before. These varieties can be higher yielding, healthier for consumers and the environment and improve food security while continuing to maintain Canada’s high safety standards. Canadians should be poised to reap the economic and social benefits of plant breeding innovations.
However, members of the Agriculture and Agri-Food Canada Seed and Grains Round Table, including CSTA, are concerned about Canada’s readiness to adopt the newest cutting-edge innovations. We see Canada at risk of losing our global share of investment and new technologies. We were very pleased to see the Honourable Lawrence MacAulay, Minister of Agriculture and Agri-Food, agree with the two round tables. He has now tasked an industry-government technical working group, which we take part in, to discuss how Canada’s biotech regulations, plants with novel traits, are delivered.
Again, we applaud the committee for undertaking this important study. It’s critical to recognize and understand the role that innovation and advancements in agriculture play in feeding Canadians and driving the economy. Todd and I have several examples we would be happy to share with you as far as making Canada a more attractive place for investment, which leads to greater exports and value-added food. Thank you.
The Chair: Thank you to all three presenters. We have a number of senators who want to ask questions.
[Translation]
Senator Maltais: I have two questions, one for Mr. Smith and one for Mr. Hyra.
Our mandate is to find value added in agri-food products for export. Canada has signed a significant number of free-trade agreements with many countries. We’re doing more and more business with China.
The committee went to China and met with exporters. However, there’s an issue with the intellectual property files under your responsibility. China claims that it has laws that protect the intellectual property of other countries. In reality, it seems that this isn’t quite the case. China tends to acquire intellectual property from other companies, including Canadian companies, relatively easily. Since agricultural exports are expected to increase, how can we better protect our processors, farmers and wheat exporters’ associations when it comes to value added?
[English]
Mr. Smith: That’s a fairly complicated question, so let’s break that apart a bit. Let’s assume that there’s an export of some type of product, an agricultural or a food-processing product, to China. The question from a Canadian’s perspective is about what would happen in China and whether there would be an infringement of some Canadian’s IP rights in China. That’s one aspect of the issue.
The bottom line is that if there is commercial activity that takes place in China, that will be governed by Chinese intellectual property laws. That’s the first thing. Patents or IPs are generally considered to be nationalistic in nature. To the extent that activities are taking place in Canada, they would be governed by Canadian IP laws. To the extent that activities are taking place in China, they would be governed by Chinese laws.
With respect to Chinese companies or entities taking Canadian IP rights, there are a couple of answers to that. First, there are treaties and international agreements between countries — Canada is a member of that treaty, and so too is China — and those treaties impose obligations of countries to impose certain rights for the obtaining of intellectual property rights in those countries. For patents, for example — and likely your question is mostly directed to patents — no country will issue a patent unless the subject matter is new, useful and unobvious. To the extent that there is a public disclosure in Canada of some intellectual property right, including through the filing of a patent application by a company, that would preclude protection in China. That would preclude a company from basically taking those rights in China.
Oftentimes we hear that Chinese IP laws are behind the times. When I started my career in the mid-1990s, that was absolutely the truth. Foreign companies seeking to protect IP in China would have difficulty obtaining remedies in courts or even getting their court hearings heard. That is no longer the case. Chinese intellectual property proceedings are the most numerous IP proceedings in the entire world. It outstrips the number of patent applications or patent cases that take place in the United States. The Chinese government recognizes the importance that IP plays in their economy, and I think they have taken strides to make sure that their IP system, as a general rule, is responsive to those concerns.
I hope that’s a helpful answer.
[Translation]
Senator Maltais: Thank you, Mr. Smith. That’s an excellent explanation.
Mr. Hyra, our committee has been travelling around Western Canada for a number of years. Today, we’re seeing that you’ve made exceptional progress, in particular with regard to the quality of your grain. The grain is of export quality and is safe. You said in your brief that your association has about 600 producers. Do any of those producers still work with Monsanto, even though the company has a new name?
[English]
Mr. Hyra: With regard to the 600 organizations that belong to my company, the majority of them are family-owned operations. They are large and small. The company that now owns Monsanto is Bayer Crop Science. We source genetics from them, but they are not considered one of our members at this point in time. We source genetics from plant breeding institutions large and small, public and private. Bayer Crop Science would be one of our genetics providers, as would Agriculture Canada and the University of Guelph and the University of Saskatchewan. Our members are farmer seed growers and retailers.
[Translation]
Senator Maltais: Do any of your members grow GMOs? I’m talking about grasses, such as wheat, barley or soybeans, which contain GMOs.
[English]
Mr. Hyra: Within SeCan’s membership, our members grow all types of crops. Wheat, barley, oats and flax would not be genetically modified. We do sell a bit of canola, which would be genetically modified. Most of the soybeans from Western Canada are genetically modified.
[Translation]
Senator Maltais: Thank you, Mr. Hyra.
[English]
Senator Gagné: My first question is to Mr. Smith. In your presentation, you suggest that the IP box incentive apply not only to revenue derived from patents but also to other forms of intellectual property. You mention, for example, trademarks and copyright. How does providing a reduced tax rate on revenue from trademarks and copyright promote innovation and research and development? I understand the patent, but with trademarks and copyright like Tony the Tiger, I’m just trying to see how that would promote innovation.
Mr. Smith: It’s a great question. Here’s the way I think about IP rights and how they differ from other property rights. The answer to this, I think, and the perspective that I’ve got will inform you about why it’s so important that Canadian companies and the government in general encourage IP rights.
Here’s the distinction: With normal property, let’s say you’ve got your car. If you’re using your car, I can’t use it. The nature of property, in and of itself, is an exclusive right. Only one person can use that property at the same time. With an IP right, it’s completely different in that the owner of the right can licence other people to use it, and so you’ve got a leveraged right in and of itself. The creation of that IP in the first place allows you to leverage it and to let other people not only in Canada but elsewhere around the world use that property at the same time. The hugely important aspect of this is if we can encourage Canadians to create these assets, then Canada can benefit from that leverage.
Now, why would trademarks be grouped in the same category as patents? The answer is because the nature of the rights are the same thing. If we have a Canadian company that can develop a brand that would have a utility not only in Canada but in other places around the world, that provides the same leveraging potential that patents do. Those are exclusive rights. It’s something that’s highly in demand if you can create a fantastic brand on something, so what we’re trying to do is encourage the creation of these rights that can leverage themselves. That’s the value-added that every country in this world is seeking to encourage.
Senator Gagné: Could you give me an example of a good trademark that could have been leveraged?
Mr. Smith: Yes. In terms of Canadian trademarks, canola. Canola is probably more like a category of things, but the derivation of that seed is rapeseed oil that has been modified through traditional plant breeding methodologies to get rid of properties that prevented it from being used as a feedstock. There’s a researcher at Agriculture Canada and a professor at the University of Manitoba who were responsible for developing canola in the first place. That is something that has value around the world in terms of what canola now means to people in various countries around the world, including in Canada.
Senator Gagné: In your written submission, you mentioned that the U.S. is not included in the list of countries currently providing IP incentives as they have yet to introduce the first patent program or IP box tax incentive. You conclude that pundits may say this is because recognition of the importance of IP to business growth is already embedded in the U.S. business culture. How did that come about, and could you discuss nonfiscal approaches that would help us promote this culture that they have in the U.S.?
Mr. Smith: That’s a very interesting question. I’m trying to think of how to begin the answer on this.
How did the U.S. culture of innovation start? It started right at the beginning. If you look at the organization of the United States, I think we’re into the Continental Congress in the 1780s. The first patent statute in the United States was 1793, and it’s at attributed to Thomas Jefferson. When the Americans broke away from England, that’s how critical they thought the patent rights were. When you look at the origins of an inventor businessman and you think of Thomas Edison in terms of how he formed a group of researchers to commercialize IP initiatives, that’s probably indicative of the American sense of innovation and how important those thoughts are to the American populace.
What’s different in Canada? Canada had patent statutes before Canada was Canada. Upper Canada and Lower Canada had patent statutes, and so did the Province of Canada before there was a Dominion of Canada in 1867. Canada has thought that patent rights are very important within that. What’s different? I suppose the one thing is that there’s an element of scale to Canada. If you look at Canadian researchers, their most important market is not going to be Canada, typically; it’s going to be the United States. Canada, sometimes, for various reasons, may lose its researchers to other countries, and the obvious landing spot for some of those researchers is going to be the United States.
What can Canada do to foster this and make sure we keep research and development in Canada on a nonfiscal basis? Here’s the one thing that has happened: the obvious thought would be whether we can keep it in universities and have better ties from the universities to industry to make sure that there’s a closer relationship between those universities and businesses that can derive benefit from the research that is being conducted in universities. The IP policies of the universities are largely determined on an institution-by-institution basis based on who owns the IP and what route it has to take for those IP developments to be commercialized.
How can Canada ensure better incentivization of research and development without a fiscal stimulus? That’s a very difficult question. Without a fiscal stimulus, I think that activity would have already taken place. Without a bump or push to do something differently, I think it’s legitimate to think that you would have the same results that you’ve had in the past. I think the message we’re sending you is if you want to do something differently, you had better do something differently.
Senator Gagné: Thank you, and thank you very much for your presentation.
Senator R. Black: We’ve heard about the Barton report and the $75 billion, and I heard a speaker this morning say that’s too low, that we’re currently at around $64 billion and $75 billion is not ambitious enough. He was proposing $85 billion. What are your thoughts on that, given that you’ve said we need to strengthen and open up new markets, see increased investment and maximize yields in each and every acre?
Mr. Hyra: I heard the $85 billion as well. I think it’s bold. I think if we’re going to go, go big, so I would be supportive of that number as well.
Mr. Carey: The $85 billion was as a result of taking that Barton report to action. It was a report that sat on the shelf through the economic strategy tables. There was one specifically on agri-food. The chair of that, Murad Al-Katib, thought $75 billion is great but $85 or $90 billion is where we should be. We’re fully supportive of that and think we can get there, but it requires, as our colleague on the video said, an intellectual property environment that fosters innovation and allows for return on investment regulations that make Canada attractive.
In our industry, we also see that about 30 per cent of plant breeders have taken research to the U.S. or other jurisdictions because it was a more attractive environment to invest in. We see that in our industry as well.
Senator R. Black: But you’re confident we can make it?
Mr. Carey: Yes.
Senator C. Deacon: Mr. Smith, I think I saw your twin brother last week in the Banking Committee. He did an excellent job, as you are doing today. It was one and the same, to be clear. I think he’s claiming attribution to all the great ideas you brought forward.
I had to step out briefly during your presentation, but one of the things I was reminded about when you were talking about the history in the U.S. patent office was the quote in 1899 from the U.S. Commissioner of Patents who said that everything that can be invented has now been invented. We’re never done in this business. It’s amazing.
When looking at your box incentive and your first patent program, I’m wondering about one of the areas where Canada has significant challenges. That’s not necessarily in the creation and protection of IP, but it’s in the exploitation of it. We have some phenomenal universities that are doing world-leading research, and we have some great companies that have actually created some phenomenal IP that was sold in Nortel. All of Nortel’s IP was sold to BlackBerry and others, and it still hasn’t been unlocked entirely. We’re not as good at unlocking IP.
I want you to help me in how you see the proposals you’re putting on the table really changing that element of the process, from creating intellectual property to protecting it to then exploiting it and creating value from it, because that’s the only point at which value is created. It’s consumed during the discovery and protection process. It’s only created once you find a way to apply that IP. How will the two programs that you’re proposing help specifically in that biggest challenge that Canada has really struggled with?
Mr. Smith: That’s a good question. I don’t think these proposals are specifically directed to that. They’re directed to two things. These two programs or the incentives that we’re offering are complementary and they’re necessary, but they’re directed to different activities.
The first one is the first patent program. That’s small- and medium-sized enterprises. In the statement you made about companies are good at recognizing IP and protecting it, I don’t think that’s the experience that our members have had with respect to small companies. We do know, looking at the research, that small companies that actually do protect their IP tend to be more successful than others that do not.
Senator C. Deacon: Without a doubt.
Mr. Smith: One of the things we’re looking at is trying to encourage these companies to basically consult with IP professionals and to establish some type of a program that will recognize IP, how it should be protected and how it should be exploited. That’s the first thing, and that’s directed to small- and medium-sized enterprises.
The second incentive that we’re looking at isn’t really directed to trying to help companies exploit IP, although a side effect will have that. What the second program in terms of the IP box is really looking at how we can encourage Canadian companies, or companies basically, to house their research and development in Canada. This is going to have beneficial results for Canadians in a few ways. First, if the IP is created in Canada, the revenues associated with the exploitation of that IP, if there will be any, will largely remain in Canada. It’s a transfer pricing type of scenario. I don’t know if senators need me to go into that.
Senator C. Deacon: I get that process.
Mr. Smith: Helping companies exploit their IP is really a different issue that our incentives are not specifically focused on.
Senator C. Deacon: I just have a bias that the exploitation side is where we’ve got some real limitations, more than discovery. It’s just a personal bias, and I really like your explanation.
How do you see your proposed programs interacting with, for example, the SR&ED tax credit program? This would be then protecting IP that has been documented and recognized through the SR&ED program. It would be a great way to authenticate the value. The government would see that this is valuable IP or this has been well documented in its development. There must be some way to link the two together.
Mr. Smith: There may be. I’m probably the wrong person to ask about that. The other thing is that whether something is good IP or bad IP is often measured in retrospect.
Senator C. Deacon: I’m just saying “justifiable”.
I really enjoyed the statement you made about the seed as a microchip that powers the agriculture industry. I think that’s a wonderful statement.
My understanding is that the genetics of many of our crops grown on the Prairies now have been so improved over the last 20 years that what would normally be an absolutely devastating drought year is now nominally disadvantageous to our farmers. It’s an unbelievable ROI when you consider what that has generated. Can you give us some examples, very specific stories? I’m thinking about work you might have done with Genome Canada, where there’s a real link of researchers working with partners to mobilize IP. Just give some examples of IP that has been developed and mobilized and what that investment cycle looks like, one or two examples from within your industry.
Mr. Hyra: I’ll start and see if I’m on the mark. Specifically to your example of the Western Canadian experience in 2017 and 2018, both extremely dry years, on our family farm, growing a newer variety developed by Agriculture Canada researchers — we fund programs there, and my company represents this variety — record yield in 2017 on very little rainfall, and in 2018, less rainfall and an even higher yield.
It goes back to a breeding program that was started — the initial process in that variety would have been 15 years ago. It was the researchers’ eye for trying to ensure that the variety had the attributes that farmers wanted to grow — short, strong straw, proper disease package and the right grain quality — but also had the below-ground root structure to be able to withstand a drought. It was the foresight that that breeder had to incorporate all of these characteristics that were kind of bucking the trend at the time and had resulted in this stellar variety that was released in 2012, I believe. The variety’s name is ADC brand, developed by an Agriculture Canada researcher.
Even though the variety is great today, the environment is constantly changing. The races of disease that we battle are constantly evolving, and the researchers need to stay ahead of disease and maintain quality and consider the ever-changing environment. Even though we’ve got some good products in the marketplace, the challenge is trying to stay ahead of the pests and pathogens.
Mr. Carey: As far as the ROI, a recent study done by the University of Saskatchewan’s Crop Development Centre estimated that for every $1 you put into a breeding program, you get $7 return. There’s really not a lot of better ways to drive the economy than investing in plant breeding, whether public or private.
Senator C. Deacon: Is that a study you can share with the clerk?
Mr. Carey: Absolutely, I’d be happy to.
[Translation]
Senator Dagenais: My first question is for Mr. Smith. We know that research is still progressing and that many discoveries are being made. What’s the average lifespan of a patented discovery concerning seeds?
[English]
Mr. Smith: Senator, that would be measured from the time you file an application for a patent. It would be 20 years from that date. Basically, once you’ve made your invention, you’ll likely prepare a patent application and file it with — it could be the Canadian Intellectual Property Office, and your clock would start running at that point in time.
[Translation]
Senator Dagenais: In your presentation, you mentioned examples of innovation. We can lose innovations to other countries. Can you provide examples of innovations that have been lost, including to the United States?
[English]
Mr. Smith: Yes, there are all kinds. I went to the University of Waterloo’s engineering school before I was a lawyer, and I remember that many of my colleagues went to work at Nortel, and I know we didn’t lose that to the United States. Nortel ceased to exist, but all those researchers found homes in other jurisdictions, so that’s one thing. If you look at the history of Canada, you can go back into the 1960s with A.V. Roe. Some of those skilled researchers went to work at NASA in the United States. If you look at university researchers in Canada, sometimes we’ll attract some researchers, but oftentimes they’ll go to other places.
I think everybody is talking the same message: We want to create an environment in Canada that welcomes our researchers, because these are the highest-educated people we have in this country. We want them to have an environment in Canada where it makes sense that they can perform the research here. It’s not just having favourable IP laws. It’s also having regulatory business laws that are favourable and flexible for those researchers. It’s about having a favourable tax climate. Unless everything is in place, these highly qualified researchers have the most options of anyone in our country as to where they can live and perform their research. If they’re that good, they’ll have choices. What we want to do is make sure that the business and research climate that we can offer is the best that we can possibly have. I think all members of this panel are speaking from the same songbook on that message.
[Translation]
Senator Dagenais: With regard to the funding issue, we know that often major companies or industries want to take ownership of discoveries in order to exploit them, and they obviously need the necessary funding to do so. Are other smaller industries interested in innovation?
If you had money to invest in innovation, would Canada be an attractive country in this regard?
[English]
Mr. Smith: It’s probably like all things in terms of an investment. It’s probably not done generally on a macro level. It’s probably done more on a micro level. If someone is investing in technology that has been developed, it’s probably going to be technology specific.
Here is what I can tell you: The seed industry is one example where Canadians have been leading researchers in this area. The example I gave about the development of canola is really a story about innovation and development that changed the economy of Western Canada. I’m pretty sure the gentlemen can offer better statistics, but I think it was something like nine million acres that were planted with feedstocks after the Second World War when the demand for rapeseed oil as an industrial lubricant dried up. Canadian researchers basically turned around the economy of Western Canada with that innovation.
Those research activities still take place in Canada, but some of the seed companies have their research facilities in Argentina or the United States, for example. One question is: If these companies are involved in these industries, can we make sure that Canada is an attractive place for those important research activities to take place here?
[Translation]
Senator Dagenais: Mr. Hyra, can family farms be innovative? If so, can they benefit from their innovations?
[English]
Mr. Hyra: Yes, in many ways. I have an example of a colleague who initiated his own plant breeding program about ten years ago. He and his wife and children, after leaving another company, decided that they were going to be a plant breeding company. He is one of a kind in Western Canada, working out of his own research facility on the edge of Saskatoon. After ten years, he will be commercializing his first two varieties in 2019 through my company. It’s a great deal of pride that I take in fostering that relationship with him, because he’s a one-man show and has invested a tonne of his resources. It’s the plant breeders’ rights laws we have in Canada that will enable it, and we are hoping that a value-creation system will generate more revenue to attract more like him to be innovators in industry.
[Translation]
Senator Dagenais: We’re talking about administration and money. As you said, there may be administrative issues. Can you provide some examples of administrative issues with the government or Health Canada, for instance, that could slow down the development of new seeds?
[English]
Mr. Hyra: It is not a straightforward process to bring a new product through regulatory approval in Canada. There are many points of entry for a new breeder or entrant to the marketplace, so it’s not exactly straightforward.
Those are some of the pieces we’re working on as an industry, to make some recommendations to make it more streamlined for a plant breeder like my colleague Jim, who is the oat breeder, or a plant breeder from another part of the world who wants to bring their innovation to Canada. It can be a straightforward, streamlined process that protects Canadians, ensures that the product is safe and does its job, but at the same time ensures there is no regulatory burden that is above what they would have in other parts of the world. There’s room for improvement, yes.
[Translation]
Senator Dagenais: Thank you, gentlemen.
[English]
The Chair: I have a few questions. Foodvalley in the Netherlands, are any of you familiar with that? Mr. Carey, go ahead. How do you think Canada would do if we had an example like that?
Mr. Carey: What the Netherlands has done is very impressive, for a country of that size to be the second-largest or largest agriculture exporter. In the Netherlands, for example, on the seed side, there used to be multiple organizations. They’ve organized themselves into one. There’s one group called Plantum that very much speaks on behalf of the industry. They have one voice to government, so when there are issues, they’re able to address it. From the fact that the Netherlands has been as successful as they are, we are learning a lot with that. The head of Plantum is a colleague and someone I see three times a year. We try to learn as much as we can. We look at countries geographically, the Netherlands, France, and the U.K., that are bringing out new seed varieties faster than we are. The Netherlands is one that we’re looking to emulate.
The Chair: Thank you.
Mr. Smith, you gave us two recommendations in your brief. I’m wondering if you have any other recommendations, or did you feel constrained by the time?
Mr. Smith: This is what we’ve got on the table now, but in light of the question we got about the exploitation of IP, I’m going to take that back to IPIC. It may not be today, but we’ll come back with another recommendation at a future point.
The Chair: We’d appreciate that. Just send it to the clerk, and he’ll make sure we all get it.
Mr. Carey, I had another question for you. In your brief, you talked about a whole-of-government approach, including regulatory comments and ag regulations can actually be a detriment. You also mentioned that Canada should seek other trade deals. Of our current trade deals, or those that are in the process but not already signed, what are the greatest attributes that have helped your industry do the most value-added?
Mr. Carey: A great question. After CETA and during the negotiation of the TPP or CPTPP, the way that the government was involved in negotiations changed in a very positive way. What we’ve seen with both the CPTPP and the updated USMCA is an increased focus on a couple of things that really impact our industry.
One is science-based equivalency that recognizes that if we’re doing a trade negotiation with a country that has a recognized regulatory system, that there should be some science-based equivalency and a sharing of science. On the biotech approval processes for genetically modified traits, which are a big part of Canadian agricultural exports, you don’t have to have a biotech approval process, but if you do, it has to be transparent. There is also a mechanism on the IP front with the CPTPP that every member country within a certain time of ratification has to update their plant breeders’ rights, their intellectual property rights for plant breeders, to be compliant with the international standard of what is called UPOV 91, which is the International Union for the Protection of New Varieties of Plants.
So it does give some of the questions around China and things about IP and concerns for all the CPTPP — once in force, all those countries will have to bring up their own domestic intellectual property rights to be compliant with international standard, which Canada only ratified in 2015, but we’ve seen a huge increase in investment. Cereals breeding program started in Canada because of that investment.
The other one is a big one, which is low-level presence. Low-level presence is if a genetically modified trait is approved in one market and not another, that there is a way of dealing with that if there is a small amount found in a shipment. That is progressive, and that language carried over to the USMCA even more so than the CPTPP. We had the Canada chief agricultural negotiator with us in our meetings today in Ottawa, and he mentioned that will be the standard going forward, which is huge for our industry.
The Chair: Terrific. That sounds very positive.
[Translation]
Senator Maltais: Mr. Hyra, in your brief you talked a great deal about soil degradation. We’ve heard about this issue from farmers in all the provinces. I believe that I saw in your brief that there hasn’t been a convincing report since former Senator Sparrow tabled a report in 1984. Is there any way to update this? Is there any research being conducted with the provinces and federal government? Is the federal government working with the stakeholders and investing the necessary money?
This is a major issue. In Ontario, 3 per cent of the soil has disappeared, in the West and in Quebec as well, and I would even say everywhere in Canada. What’s your recommendation to the committee? We’re talking about value added, but if we don’t produce, it doesn’t work. Do you have any specific recommendation to make to the committee concerning the modernization of our Canadian soil?
[English]
Mr. Hyra: I can’t speak to specific data, but I can speak from my life example of growing up on a farm where the farming practice when I was a teenager was summerfallow and having seen that practice disappear over the last 25 or 30 years to incorporate new modern farming techniques, so not only using new genetics and new varieties, such as herbicide-tolerant canola, which allows better weed control without tillage but also was an enabler for zero tillage, so more stubble holding the soil and greatly improved soil health. When I was a kid, I remember soil drifting and blowing. You don’t see that anymore in Western Canada the way you did. Even with the dry conditions that we saw this past year, it’s remarkable how the agronomy and the equipment have meshed together to improve the management and productivity on the same amount of land. So I believe that soil health is improving.
[Translation]
Senator Maltais: I also want to hear from Mr. Carey, since this is very important for the future.
[English]
Mr. Carey: Sorry, I missed that. Is that on the soil question? I know this one is near and dear to Senator Black’s heart. I have an email on this topic. One of our partner organizations, the Canadian Seed Growers’ Association, has just entered into a partnership for soil improvement, so that’s on the to-do list to get to that unread email.
But as Todd said, soil health is really geographic, and it’s by regions and soil kind. You’ve got areas where soil erosion is a big issue and other areas where soil compaction is a big issue. When Todd was referring to zero till, that’s essentially the old farming practices where before you planted, you took your tractor and you plowed that field. You disturbed all that soil and released that carbon, but you had to do that because we didn’t have the genetics or crop protection products or pesticides to allow. Nowadays, when you go to most modern farms and they’ve harvested and they’re ready to plant, you see stubble on the field because they plant a seed that’s treated with a small amount of insecticide, it’s protected and that soil is not disturbed. So we have seen a huge increase, but it is something that we have to pay a lot of attention to. What’s critical in that is a proper crop rotation.
[Translation]
Senator Maltais: By wanting to preserve the ozone layer, aren’t we destroying our soil for the future?
[English]
Mr. Carey: Todd can speak to this too, but not having to till the soil is a good thing for the soil’s health as well. Not having to drive a tractor that’s burning diesel and having to disturb all this soil is a good thing. The more undisturbed the soil is, typically the better, and also making sure you don’t plant corn on corn on corn, that you rotate corn to soybeans to wheat, which is a typical Ontario rotation. But not tilling the soil is good for the soil.
Mr. Hyra: Not tilling reduces water erosion and wind erosion and allows the biomaterial to be re-incorporated. It’s a valuable part of a system that I believe is improving our soil health. It is critical for farms to have long-term, viable soil that’s going to be there for generations. My family farm is a third-generation farm, and I believe that the soil is in better health than it’s ever been because of these modern techniques.
Senator Gagné: I know it was mentioned in your presentation that Canada has invested quite a bit in R&D but, if we want to reach the $75 billion or $85 billion goal in ag food exports by 2025, do you think that Canada’s R&D investments are adequate?
Mr. Hyra: One of the challenges is 2025 is only seven years away. A lot of the R&D that we start now will impact us in 2030 and beyond. More R&D is better, but it’s really maximizing the opportunity on the products that are in the marketplace now so that they generate revenue to encourage greater investment almost beyond 2025. It’s a cycle that takes 10 to 15 years to put into place. Showing the signals encourages investment and keeps that investment moving forward.
Senator Gagné: So we’re on the right track? That’s what I’m hearing?
Mr. Hyra: We’re making moves for the right track.
Senator Gagné: Okay.
Mr. Hyra: There are some pieces with this value creation discussion that we’re having now, and that’s an important part to encourage investment long-term.
Mr. Carey: As far as encouraging investment, every five years we do a private sector survey of our members and it’s the most comprehensive one. When this was last done in 2012, we did not have plant breeders’ rights. I won’t read it but I’ll send it to the clerk. With the indication of now having plant breeders’ rights and also moving towards value creation, in 2012 our members invested $101 million in private sector R&D. In 2017, our members invested $171 million. That’s just CSTA’s members. It’s a 56 per cent investment growth. It’s projected that if we continue down this path, we’ll be at $180 million a year by 2022.
All of that is under assumptions, because our members are forecasting that we get a value creation and that we update our plant breeders. There are a lot of assumptions built into that. Just the mention of an increase in intellectual property, because it’s recorded in the responses, is enough to stimulate and say, “Okay, Canada, let’s drive.” Anything we can do to make it attractive, that has a huge ripple effect.
Again, if you look at $170 million invested in private sector plant breeding and you multiply that by the 7:1 return factor that we mentioned, that’s a huge piece of the puzzle.
Senator Gagné: Thank you very much.
Senator C. Deacon: Mr. Smith, I just want to be really clear that I’m not against the protection of IP in any way, shape or form. I just want to be really clear on that one. I just know how tough it is to get any tax incentives through finance. There’s a job to be done to show that this is going to definitely cause a net increase in companies to make money. They’ve got to see an ROI and they have got to make sure that they’re not just subsidizing legal fees that might otherwise be paid, that you’re creating net new value. It’s going to be a challenge with that. Do you have data or have you done some analysis on that regard?
Mr. Smith: We’re early stage on this. We recognize how important it is to develop data. The U.K. is probably ahead of the rest of the pack in terms of providing these tax incentives, and the data is coming out of there. Some of it is in the paper that we presented. That’s the first thing. The second thing is we recognize how important it is going to be to provide economic analysis of that, and we’re in the process of starting to gather that for government.
Senator C. Deacon: Great. That is super. Thanks.
Mr. Hyra and Mr. Carey, go big or go home, for sure. I couldn’t agree more with that, but I want to get a sense from your members. Have you assessed from your members what they need over the next number of years, recognizing the long-term R&D cycle, from the discoveries they’ve already proven and where there’s demonstrated value? What are the elements they need that the federal government could be helpful in putting in place to unlock as much possible value from what’s already in inventory, as such? We’re not going to go big or go home without some very specific strategies and some very specific ways in which we can deliver differentiated value on a global basis. Do you have that information you can share with us, that your members are saying we need these sorts of programs, or we need these sorts of areas of focus?
Mr. Carey: I’ll just say, yes, absolutely. I think one thing that is critical is there are no silver bullets. We can talk about a whole-of-government approach. We can talk about three buckets, and there are associated regulations and legislation under each one.
We talked a lot about intellectual property, so updating Canada’s Plant Breeders’ Regulations. If everything goes as planned, it is under consultation and it would hit Canada Gazette in early 2020. That’s key. We need a way to get a return on your investment. That’s the first pillar.
The second pillar is making it easier to get your products to market through CFIA and Health Canada’s joint approval process. It is about updating the plants with novel traits, the overarching legislation that CFIA and Health Canada use to approve plants. That sorely needs updating, and the Minister of Agriculture has agreed.
The third pillar is continued access to crop protection products. By that, I mean the Government of Canada or Health Canada and PMRA, the Pest Management Regulatory Agency, are consulting on phasing out the use of an active ingredient called neonicotinoids. Our concern is if that product doesn’t pass muster, nothing else is going to.
When we talk about a whole-of-government approach, the government can set great export targets up here, but if there’s no trickle down to the agencies that regulate us, which we often find takes longer, those are three of the key pillars. You need a return on investment, you need to be able to protect your product and you need get your product to market. There are regulations and legislation associated under each of those buckets, and the government has, for the most part, recognized that. The PMRA is doing a review, and the Seeds Regulations and Plant Breeders’ Rights Regulations are going to be modernized. The minister has created an industry/government working group on the plants with novel traits. We’re making progress.
Mr. Hyra: I think you covered all three, Dave, so I’m good. Thank you, chair.
The Chair: I’d like to thank all three panellists. It was a great discussion. I’m really pleased you were able to be here this evening. Once again, I apologize for our late start, but when we’re in session in the Senate, we’re in session. Thank you very much.
(The committee adjourned.)